Liga Asuransi – Dear readers, how are you? In accordance with the requests of our subscribers, this time we will be discussing the basic things of insurance transactions, namely insurance premiums.
As we know that there is no insurance guarantee if there is no premium. Although the insurance policy has already been issued, if the premium has not been received by the insurance company, then the insurance is not yet valid and if there is a claim cannot be paid.
So, insurance premiums are very important.
As a senior insurance broker, in accordance with our experience that most clients always want the cheapest premiums. And that makes sense, especially for construction insurance coverage, premium reduction means cost savings and that will eventually increase profits.
However, we must realize that there are still many who do not understand that the cost of insurance premiums is related to the extension of coverage. The wider the guarantee, the more protection, and the higher the premium.
But unfortunately, not many customers understand how broad the insurance coverage they have.
For your information that insurance policy coverage is not standard, although the title is the same and issued by the same company. It could be that your friend’s insurance policy premium is lower than the insurance premium you pay even if the insured items are the same.
One reason is that the extension of the guarantee is different.
Now, the best way to get maximum insurance coverage and the most efficient insurance premiums is to always use the services of an insurance expert called an insurance brokerage company/insurance broker.
The insurance broker will design an insurance policy that suits your needs, choose the best insurance company, and negotiate the cheapest premiums because the insurance broker knows what the best insurance premium rate is!
And most importantly in the event of a claim, the insurance broker will take care of it for you.
Well, this time we will discuss in more detail the intricacies of insurance premiums. Hope this article will be useful to you.
If you are interested in this article, please share it with your colleagues so that they understand just as well as you,
What is Insurance Premium?
Insurance premiums are the amount of money that an individual or business pays for an insurance policy. Insurance premiums are paid for policies that cover health, car, home, and life insurance.
Once received, the premium is income for the insurance company. This is also an obligation, as the insurance company must provide a guarantee for claims made against the policy. Failure to pay premiums on individuals or businesses may result in the cancellation of the policy.
Insurance premiums are the amount of money that an individual or business must pay for an insurance policy.
How Insurance Premiums Work
The premium price depends on a variety of factors, including:
- The type of insurance coverage
- Type of occupation of business or type of work
- The location of the assets
- Past claim experience
- The amount of sum insured
- Supporting documents or survey report
- The period of coverage
- Authority standard rate
- Protection measures
- Insurance Market Rate
Type of insurance coverage
In general, insurance is divided into two groups, life insurance, and property insurance. In this article, we will limit the discussion to only general insurance or property insurance.
General insurance is a type of insurance that provides protection in the form of compensation for damage and loss of property such as houses, property, factories, heavy equipment, ships, cargo, and others.
There are several types of general insurance, depending on the type of risk, the type of object, usability, location, and many other factors.
There are currently about 25 types of general insurance on the market. Among others, are property insurance (Property All Risks), earthquake insurance, factory insurance, motor vehicle insurance, goods insurance, ship insurance, legal liability insurance, health insurance, accident insurance, heavy equipment insurance, construction insurance, and others.
General insurance also has a branch called Financial Risk or Surety Bond. This type of insurance is in the form of guarantees for the client’s failure to fulfill his responsibilities resulting in financial losses such as fines, fines, and financial risks.
Insurance products that fall into the financial risk group include Bid Bond, Performance Bond, Payment Bond, Custom Bond, and others.
Well, the amount of insurance premiums is strongly influenced by the type of insurance and the type of risk faced.
Types of Property and Types of Works
For example, sedan cars when used as private cars the premium rate is lower when used as a taxi including online taxis then the premium rates are different. The premium of online taxis is much higher.
Likewise, if a building is used as a general warehouse, the premium rate is much higher than that used as a factory, even if it is in the same location.
The same thing happens in the construction field. Projects located in wet areas such as piers, bridges, and roads are much higher than office building construction projects even though the investment value is the same.
The premium for issuing bond guarantee guarantees of the same type of project may differ from one contractor to another due to the findings of financial conditions.
Property Location
For example, if the property or project is close to the beach or river then the chance of flooding is high. Or if a hotel is close to the traditional market, then the premium is much higher than hotels located in office areas.
Likewise with the risk of earthquakes. Properties located in areas close to the epicenter rate premium (ring of fire) are much higher than buildings far from the epicenter.
Past Claim Experience
One of the factors that affect the level of insurance premiums is the experience of past claims. If you have ever experienced an insurance claim, then the insurance company will note that there is the potential for similar accidents even though repairs have been made. As a result, the insurance company will increase the premium rate for you.
Sum insured
For general insurance, what is meant by sum insured is the value of the asset. Almost all types of general insurance policies require that the sum insured is worth the new price (new for the old) or the value of the redevelopment (recovery value).
For a high amount of sum insured, there is special consideration from the insurance company for a special reduction in premium rates. This is called mass purchase.
Supporting documents or survey reports
Likewise for banks when processing loans to their customers, insurance companies also want to do a risk analysis of how much potential customer risk.
To arrange insurance on assets such as buildings, factories, projects, ships, and others. Then the insurance company needs supporting information in the form of documents, and asset specifications, such as the year of manufacture, size, type, number of floors, usability, and so on.
Meanwhile, to provide surety bond guarantees (bid bonds, performance bonds, and payment bonds) then insurance companies need information about the employment contract to be carried out, company biodata, financial statements, and other supporting documents.
If the information and survey results are satisfactory then the insurance company will provide guarantee approval. The better the results of the analysis, the lower the cost of the premium offered.
Insurance Period
Every insurance policy has a time limit. For general insurance, the average guarantee period is 12 months, except for construction insurance, marine cargo, and travel the term is adjusted to the term requested according to the contract.
If the insurance period is too short, for example, 2 or 3 months then the insurance company will charge a short rate or short period. This rate is higher than the average premium if using 12 months.
Authority Standard Tariff
For some types of insurance in Indonesia, there are standard rates regulated by the Financial Services Authority (OJK) for example for property insurance rates, earthquakes, and motor vehicles.
For this type of insurance, the rate is quite standard, which can still be sought to reduce premiums is to asking for a special discount.
Asset Protection Facilities
What is meant by protection is all the facilities, equipment, and tools available to prevent and reduce the impact of accidents.
For buildings and factories, for example, the availability of firefighting facilities. The more complete the firefighting facility the lower the premium rate. There is usually a special premium reduction rate called the Fire Extinguisher Appliance discount.
Likewise with ships and construction equipment, if the protective equipment is fully installed in good condition, then the cost of insurance premiums will be lower.
International Insurance Market Price
As you probably already understand that the insurance industry is part of the global economy. Insurance transactions are always related to international insurance conditions. This can be seen from the reinsurance mechanism.
Please note that insurance companies cannot stand alone. It needs to be supported by other insurance companies to share risk (risk-sharing). Sharing risk can be with the same insurance company in Indonesia but also with insurance companies abroad (reinsurance).
Well, if premium rates in the international market rise, it will automatically have an impact on the insurance industry and tariffs in Indonesia, although there is no change in conditions in the country.
Special Considerations
Frankly, to determine premiums is complicated because every policyholder has a unique risk profile. Insurers will evaluate historical losses for hazards, examine the risk profile of potential policyholders, and estimate the likelihood of policyholders experiencing risks and to what degree. Based on this profile, the insurance company will set a monthly premium.
If the insurance company underestimates the risks associated with expanding coverage, it could pay more than it receives in premiums. Since an insurance policy is a contract, insurance companies cannot claim that they will not pay the claim on the basis that they miscalculated the premium.
The amount of premiums an insurance company charges is partly determined by how competitive a particular market is. In a competitive market consisting of multiple insurance companies, each company has a reduced ability to charge higher rates due to the threat of competitors charging lower rates to secure greater market share.
Underwriter Role
Underwriting work is an integral part of business for insurance companies and investment banks. While it is impossible to eliminate it completely, risk underwriting is a fundamental focus for risk mitigation efforts. The long-term profitability of underwriters is directly proportional to the mitigation of underwriting risks.
How to get the cheapest insurance premiums?
Most consumers find shopping around to be the best way to find the cheapest insurance premiums. You can choose to shop alone with an individual insurance company. And if you’re looking for deals, it’s easy to do this yourself online.
But the best option is to try through an insurance broker. Brokers tend to work with several different insurance companies and can try to provide you with the best deals.
One of the insurance brokers companies in Indonesia that have extensive experience in providing the most competitive premiums and maximum guarantees is L&G Insurance Broker.
For all your insurance needs, contact L&G now!
Ref:
- https://www.investopedia.com/terms/i/insurance-premium.asp
- https://www.investopedia.com/insurance/what-causes-your-insurance-premium-go-up/
- https://www.investopedia.com/terms/i/insurance-premium.asp
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